FTAI Aviation Ltd (FTAI) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host, Alan Andreini. Please begin, sir.

Thank you, operator. I would like to welcome you to the Fortress Transportation and Infrastructure Second Quarter 2018 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; and Scott Christopher, our Chief Financial Officer.

We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast.

In addition, we will be discussing some non-GAAP financial measures during the call today, including FAD. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

Now I would like to turn the call over to Joe.

Thanks, Alan. To start the call, I'm pleased to announce our 13th dividend as a public company and our 28th consecutive dividend since inception. The dividend of $0.33 per share will be paid on August 28, based on a shareholder record date of August 17.

So first let's discuss some numbers. The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q2 2018 was $52.2 million, compared to Q1 of 2018 of $48.1 million and Q2 of 2017 of $28.8 million. FAD was $44.8 million in Q2 versus $34.4 million in Q1 of 2018 and $34.6 million in Q2 of 2017.

During the second quarter, the $44.8 million FAD number was comprised of $73.2 million from our equipment leasing portfolio, negative $11.2 million from infrastructure and negative $17.2 million from corporate. The overall infrastructure number was better this quarter due to improved results at Jefferson. Corporate FAD was slightly higher than Q1, primarily due to increase in interest expense resulting from the new $100 million bond issuance in May and higher corporate G&A expenses.

Now let me turn to aviation. Our aviation business continues to exceed our expectations for growth, as we maintain and even exceed our expectations for profitability. Aviation normalized adjusted EBITDA was $59.8 million versus last quarter of $56.2 million. We closed on $113 million of new investments in Q2, or $194 million year-to-date. And as of this call, we have added about $280 million of new deals, which brings our total outstanding LOIs to $313 million, which is our highest ever.

Our aviation business is expanding, and our ability to source and make new investments which meet or exceed our return standards is keeping pace with that growth. We now expect our run rate aviation FAD to be approximately $315 million per annum after closing all these LOIs over the next 2 quarters, up from $265 million last quarter.

Aviation EBITDA will be growing over the balance of 2018 because most of the equipment that we have closed on and expect to close on this year is already on lease. In addition, 8 of the 9 Air China planes, which in some cases were off lease for over a year as they went through heavy maintenance, are now on lease, and the ninth and final plane, we expect will go on lease this quarter.

So even if we did not do any more aviation deals for the balance of 2018, you should expect continued growth in EBITDA and FAD from aviation in Q3 and Q4 of this year.

The engine market is extremely strong currently and the conditions that create this tight market are highly likely to continue for at least the next 3 to 5 years. As a reminder, we currently own 126 engines and 57 aircraft, which also have engines on them. And because we focus on older aircraft by design, over 80% of the value of the aircraft fleet is engine value. So overall, approximately 90% of our total aviation portfolio by asset value is engines. And we've chosen to focus on the engines that power the 757, the 767, the A320 and the 737 aircraft, which are, in our opinion, the best of the best and the market agrees with us. Lease rates on the engines in which we specialize are up.

The factors driving this market growth are: one, overall growth in global passenger air travel and e-commerce growth driving higher air cargo; second, a large number of 737 and A320 engines are coming up on their first major shop visit; third, there's been an increase in mandated inspections as a result of regulatory directives for maintenance; and fourth, the life extension of 75s, 767s and 747 engines due to aircraft being proven moneymakers extremely reliable and freighter convertible; and fifth and finally, there's a tight supply of independent maintenance capacity and parts availability, which results in cost inflation for major shop visits comprised of parts and labor, which means engines go up in value, which is good for us.

Given the math around the engines in our relevant market space, it's easy to feel good about the value of everything we own. The prospects are stable and even increasing returns available through our advanced engine repair proprietary products and the opportunity to grow the fleet faster through larger acquisitions from airlines and other owners.

Now talking about offshore. As we discussed on last quarter's call, we are in the process of repositioning our advanced construction vessel, The Pride, into the more profitable and less oversupplied well intervention market. The vessel completed its most recent project in May of 2018 and is currently in a shipyard in Singapore undergoing repairs and maintenance. We expect to use this vessel's downtime in the yard to undertake modifications for well intervention, and we've begun the process of procuring the necessary well intervention equipment for the vessel. While we continue to market the vessel for interim work, our 2018 results will reflect the lower utilization on The Pride as we ready it for well intervention work in 2019.

Turning now to infrastructure and starting with Jefferson. Jefferson had an excellent Q2 on a couple of levels. One, operationally, we handled over 3.3 million barrels of product through the terminal, with strong growth in refined products and crude. And secondly, strategically, the expansion plans advanced on all fronts around pipeline connectivity, new storage customers, crude-by-rail and refined products to Mexico. It's a great time to own an energy terminal on the U.S. Gulf Coast.

Firstly, on refined products, we have been loading approximately 15,000 barrels per day starting in Q2. And with the addition of a tank, which will come on soon, we will increase that to 20,000 barrels per day. We will be offline for several weeks in August, as we do undertake more CapEx investment to take our existing customer to 40,000 barrels per day capacity. And the outlook for additional demand remains excellent. We could sell every barrel of capacity we could deliver.

Regarding ethanol, we experienced a decrease in volume in Q2 due to capacity constraints during our transition to the new operator and the expected seasonal fluctuations in that market. But we've been running at 20,000 barrels per day in Q3 and expect to go to 35,000 per day by Q4 and onward.

Demand for ethanol internationally remains high. To that point, we expect to sign, in the next few weeks, a terminal service agreement with our first third-party customer. If this deal is executed, the terminal will be fully sold out with commensurate volume commitments with respect to the existing infrastructure.

On crude with WCS, Western Canadian Select spreads to WTI very wide, crude-by-rail from Canada is a very attractive move. We moved approximately 250,000 barrels equivalent to 5 unit trains in Q2 and will move 500,000 barrels equivalent to 10 unit trains in Q3 on behalf of a new customer, one of the major refiners near us in Beaumont.

In September, we began a new crude-by-rail service, where we originate barrels in Canada directly from producers and arrange all the transportation to Jefferson, with committed rail capacity provided by CN, running for 14 months. On that move, we will be delivering approximately 10,000 barrels per day with enhanced economics.

Regarding the bigger expansion of the crude system, we have completed a significant amount of the engineering, permitting and right-of-way acquisition for the $400 million investment in the TransCanada and Zydeco pipeline connections, a construction of a new ship dock and 3.5 million barrels of new storage.

On the commercial side, we've made great progress with 3 major potential tenants for the crude and are working on timing and engineering with a goal of having commitments in place by the end of 2018 for this expansion, which would be operational by the end of 2020.

In the interim, we are under construction with 800,000 barrels of new storage, which has been slightly delayed a couple of months due to the timing of steel deliveries. We've made very strong demand -- we have very strong demand for that capacity from multiple parties and expect to execute a contract shortly, which will give our newest customer access to the entire 800,000 barrels. As a result, we expect to start construction on an additional 1.4 million barrels of storage with an expected in-service date of fourth quarter 2019 for that capacity.

To roll it all up, we currently operate with 2.1 million barrels of storage today, and we expect to increase to 2.9 million barrels by the end of Q1 2019 and 4.3 million by the end of 2019 and 6.5 million barrels by the end of 2020.

In addition, in the last week, we executed and had ratified our amended agreement with the Port of Beaumont, which will give us the additional property that will make it possible to develop Jefferson to be between 26 and 29 million barrels of storage in total. All of the pieces are coming together quite nicely, and we've made great strides by executing contracts with key new customers. Best of all, as we execute these new contracts, conversations are already proceeding on expanding those relationships.

With refinery expansion in full swing near us and with Jefferson's locations and capabilities, we're in a very strong position now.

Let's turn to CMQR, the Central Maine & Québec Railroad. The railroad had another good quarter. Total revenue, adjusted EBITDA and revenue per carload were all up in Q2 2018 versus Q1-- Q2 2017. The car cleaning operation started this quarter and is off to a promising start.

We continue to look at opportunities to purchase other short line railroads, but the competition for these assets is only getting more intense. In one recent auction, we understand that over 30 parties submitted bids. So we'll continue to pursue opportunities in this space, but at this time, we're not seeing the value opportunities that we like.

Turning now to Repauno. We had a busy and productive quarter at Repauno. Our deepwater multipurpose dock construction is going well. The dock will be completed on time by this December, and on budget. The new dock will give us the ability to handle both the growing LPG liquids export market and roll-on roll-off cargo.

The core sample analysis of the granite formation under our property is complete, and the results are even better than we or our geologists had hoped for. The study confirmed that the granite formation under our site would easily accommodate an initial 3 million barrels of LPG cavern storage with the potential for an incremental 3 million barrels in the future.

Our coring program also confirmed our initial cost estimates of $125 per barrel for the first 1 million barrels of storage and $85 a barrel for the second and third million barrels of storage. So taking into account the above-ground rail, piping and handling infrastructure, the total cost for the first 3 million barrels of storage and handling the infrastructure is estimated to be approximately $450 million and should generate approximately $150 million in annual EBITDA. We're now working on permits and engineering and expect to be operational with the first 3 million barrel cavern by early 2021.

We mentioned on our last call also that we were pleased and somewhat surprised by the level of interest from Europe for LPGs. And over the last quarter, that interest has become even stronger. As such, we're in the process of developing a unit train transloading system that will allow us to transload LPGs directly from rail to ship and allow us to get into business sooner. We're moving forward with this project due to the immediate desire by buyers in Europe to secure alternative and new sources of LPGs, and buyers are willing and able to enter into long-term contracts before our caverns are operational in 2021.

We expect this rail-to-ship system to be operational by -- at the end of 2019 for a total cost of approximately $70 million and expected $25 million to $30 million in annual EBITDA beginning in 2020. Also worth noting is that we expect to be able to originate these unit trains of LPGs at our Long Ridge Terminal in Ohio.

As to our existing 200,000 barrel butane cavern, that business is going as planned. We are storing butane for a number of local refiners and gasoline blenders, and we are now 90% full, going to 100% by the end of August, and expect to generate approximately $3 million of EBITDA in Q4 of this year. Repauno is turning out to be bigger, better and happening sooner than we expected.

Now on Long Ridge. Much like Repauno, Long Ridge is coming together faster than we had expected. Let me start on the frac sand business. We now expect a run rate of 1.1 million tons a year to be reached by Q4 of this year. June was a record volume for us, handling 70,000 tons, which exceeded our initial estimates, which we had expected to reach that level in September -- by September or October of this year. Importantly, we're now signing up new high-quality customers at transloading fees which are 25% higher than we originally forecast.

On the CapEx costs of $4 million, we're now projecting frac sand to generate $3 million of EBITDA in 2018 and $6 million to $7 million in 2019. We're receiving inbound requests for that capacity almost daily for 2 reasons: one, the market demand for frac sand is increasing dramatically as drillers have realized that more sand equates to more productive wells; and 2, Long Ridge is strategically positioned as the only terminal in the Marcellus and Utica region that offers barge, truck and unit train shipping capabilities.

As to frac sand, we have the perfect asset in exactly the right location. We have added 7 new customers in the last 90 days. Now that we have unit train capabilities, which we built for the frac sand operation, we're also in the process of developing a unit train LPG rail-loading system, which will take advantage of that infrastructure already in place. And we're well along in discussions with a nearby fractionation facility to build a pipeline from the facility to our terminal at Long Ridge to load unit trains of LPG, which then can be railed to the East Coast, including at Repauno.

And as I mentioned in the Repauno discussion, the need for LPGs in Europe is acute and growing. Given Long Ridge's proximity to sources of LPG and access to direct rail, we can offer a transportation solution that is competitive with pipelines. And if we land these trains at Repauno, we win twice.

Now let me turn to the power plant at Long Ridge. We are well along in negotiations with multiple long-term offtakers of that power from the new 485-megawatt plant that we're planning to build. Most of those contracts will be fixed price with 10-year take-or-pay terms. Based on current negotiations, we expect to have the plant fully contracted by this fall and have begun the process for securing nonrecourse project debt, which we hope to have in place by Q4 of this year.

Once financing is arranged, our current intention is to offer to sell a 49% interest in that plant in Q1 of 2019, whereby we would take out all of the capital currently invested by us in Long Ridge plus some. So at that point, after that transaction, we would own a 51% interest in a fully contracted power plant, which would commence operations in late 2020 and still own 100% of the rest of the terminal and operations.

So to conclude on Long Ridge, it is ramping faster than we had expected. And as of today, it looks as if the EBITDA stream is going to be higher than we expected. And on the other side, our net equity capital needs are going to be lower than projected, and we're hopefully going to be able to take all of that equity out plus some fairly soon, which feels like a very good investment.

So in conclusion, our aviation team is executing on the business perfectly. Five years ago, we made the decision to stay away from wide-bodies and to focus on midlife narrow-body aircraft as a means of cost-effectively acquiring engines. And that was a good choice, and we continue to reap the benefits of that decision today. Also, our plans to widen the moat to defend that business are coming together exactly as we have laid out 2 years ago. In short, I could not be more pleased with our team, our strategy and our execution.

As to the infrastructure, the plans and strategies for all of our assets are now firmly in place, and we are in execution mode on all 4. In the last 90 days, we've added -- we've acquired a total of 13 new customers at these growing businesses. Some of these deals, like frac sand at Long Ridge, are coming together quickly, some like the more complex deals at Jefferson can take months to bring together. The point is that they're all happening, and they're happening at an accelerating pace.

With respect to Jefferson, Long Ridge and Repauno, all 3 of these assets are in the perfect location geographically and have the products to meet the current and long-term needs of our industrial customers. In multiple cases, customers that we've had difficulty engaging with 2 years ago are now meeting with us weekly, and these meetings review current operations and importantly, often include planning sessions for much bigger initiatives yet to come.

The vision setting is complete, and we're in execution mode. Using hindsight, we made the right choices about where to acquire infrastructure and the capabilities and attributes of those assets. Our current and future customers recognize that. As a result, both the frequency of new customer signing and the size of the contracts involved are growing.

Finally, it's taken a lot of hard work from a very talented and dedicated team of people who have kept their eye on the long-term goals that we collectively set for FTAI. We set out to build a company where leasing would cover our dividend and our infrastructure assets would provide long-term growth to increase that dividend. And I could not be more proud of our team and how we are positioned today.

So with that, let me turn the call back to Alan.

Thank you, Joe. Operator, you may now open the call to Q&A.

(Operator Instructions) Our first question comes from Justin Long of Stephens.

With the continued strength in the pipeline for aviation and the plans for Long Ridge going forward that you just discussed, Joe, could you provide an update on how you're thinking about financing these investments going forward? And is there a possibility you'd be willing to go beyond the 50% debt-to-cap ratio you've historically talked about as the ceiling?

Sure. So on the second question, I mean, to the extent we have nonrecourse project level debt like what we talked about at Long Ridge, we would not count that in the 50%. I don't think that's an appropriate way to look at the leverage, given that if it truly is nonrecourse and it's a project and in particular an investment like that where we might have little or no equity investment, we wouldn't use that as sort of a measuring stick. And we do intend to do a fair amount of the project. As I mentioned, Long Ridge, we intend to do substantial amount of capital that way. If we secure contracts at Repauno for offtake of LPGs, we would certainly do that. And based on the numbers we're talking about, we would be able to finance quite a bit if not all of the CapEx there. So I think for those assets that's how we would proceed. On the corporate side, we are increasing our revolver. We've upped it from $75 million to $125 million. We have nothing drawn on that today, so we have availability there. And we have very good access to the debt capital markets. Our bonds are trading at about a 5% yield right now. So we have options on the debt side for the aviation portfolio, and it's not a rush for us to do anything on that anyway because those deals will be closing over the next 2 quarters. So sometime in the fall is when we'll look at the various options.

Okay, that's helpful. And secondly, I wanted to ask about the dividend. With the new aviation FAD run rate that you provided and all the commercial development activity that you walked through, do you have any updated thoughts about when you could reach that 2:1 coverage ratio and potentially evaluate an upward revision to the dividend?

Sure. So based on what I just laid out, it feels to us like we would cross that 2:1 line sometime either between -- we're including the fourth quarter of this year and the second quarter of next year, and that's when we would look at it.

Our next question comes from Devin Ryan of JMP Securities.

I guess first one here on Long Ridge. Appreciate all the color, and it sounds like it could really be a homerun if you can sell a stake and take out the initial capital there. And so really, a 2-part question here. So I guess do you have any data points or comparables on sales prices or anything that would give some indication of kind of what you could get there? Or are there already indications of interest? And then the second part is obviously, it sounds like there's a lot of demand there and you're at 485 megawatts now scheduled. Is there a way or do you have the capacity to actually increase the size there? And if you could, how large could you get?

Sure. So on the first part of the question, there have been some recent transactions, around 13x EBITDA. [Nick's] just announced a sale that their own asset and there's some other private transactions for contracted deals. And so that's the key difference rather than merchant. And so in some ways, our contracted power will be better than others in that we will have fully contracted, not partially. So we're looking for 100% coverage, and we also have some interesting twists, where we have some upside to that in that we could -- as we bring in tenants to the property, we could swap out some of the existing capacity for higher-returning tenants and up the EBITDA further. So I think we could present somebody with a very nice profile, where we have 100% fully contracted with upside, which is pretty hard to get. So I'm hopeful that the market multiples -- we could exceed those market multiples based on, I think, what we have is extremely attractive and that's what people have said to us, so feeling good about that. And then obviously, we had the same reaction. We said, well 485 megawatts, we could do this, why don't we -- maybe we should make it bigger, and we're studying that. So it's not without some issues as always, but we are definitely looking at it.

Okay, perfect. And then just the follow-up here, I heard your commentary on CMQR and just the level of demand for other assets in the market. I'm curious, just based off of that dynamic, should we read that as it makes you more of a seller versus a buyer? Or just how we should think about that asset? And maybe timing of your thought process there?

Well, it's as we said in the past, definitely something we're considering and as the market has strengthened, it's even more compelling. There are some strategic advantages for us to own that right now, but it's definitely on our minds and something we will look at and probably in the near future.

Our next question comes from Christian Wetherbee of Citi.

Maybe wanted to start on Jefferson. Joe, you went through a lot of potential opportunities there, terminal partner deal potentially, you obviously have the new crude-by-rail contracts coming through. Can you just help remind us sort of how we think about sort of ramp of earnings power of the asset as we start to get into later this year and sort of 2019? Can you sort of help us with that EBITDA and FAD ramp that you've talked about before?

Sure. So last time, we had talked about a run rate of $40 million to $50 million at the end of 2019. And as I mentioned, a decent chunk of that revenue and EBITDA was coming from the new 800,000 barrels of storage, which is pushed out probably 2 to 3 months, given the timing of getting steel. With the announcement of the tariffs has caused some delays in the steel supply chain. So it's probably a Q1 event now to get to that level. And then beyond that, we've got the additional capacity I mentioned coming on by the end of 2019, which is another jump up for us probably in 2 different stages as opposed to last time we sort of lumped it all together, but that would push us up close to the $70 million, $80 million range by the end of 2019. And so then -- and that is just fairly linear as you lay out storage additions from there as we did the last time.

Okay. That's helpful. That's -- hopefully, get the extra timing there. Switching gears to the aviation side to get a sense. The LOI number, obviously, has increased pretty dramatically. You talked about sort of a ramp up even if you stop making incremental deals in that space. My guess is you're not going to do that. So could you sort of just give us a sense of maybe what you think the ramp up on the LOI side could be in the back half of the year? I'm guessing demand is still quite strong. Just want to get a sense of maybe how you see that kind of playing out?

Well, I think as I mentioned, we've got a very active pipeline and the deals are looking bigger and better. So I've never tried to forecast CapEx because you never know -- you want to make sure you maintain your return requirements, and you don't force a deal. But it's very -- it's a very good market. In spite of the fact that many of the segments of aviation leasing, if you talk to other leasing companies, they'll say how competitive and how difficult things are, and how much money is chasing deals. Most of that is for newer assets. And so in our space, we haven't seen any change in the competitive environment. And as a matter of fact, our presence and our ability to source bigger deals, it's getting better. So I'm pretty positive about the environment for investing.

Okay, yes. No, that certainly makes sense. Then, last question, just staying on aviation for a minute. You talked about the sort of choices you've made in terms of engine investment. And clearly, it seems like you guys are in the right part of the market right now. We don't get as much visibility into it. But can you give us a sense of sort of how you're thinking about asset prices? Maybe give us a sense of how asset prices have developed over the course of the last year or so? You've made a lot of incremental investments. Our sense is those investments have paid off from asset appreciation as well as the income that they're putting off. I just want to get a sense how to think about that.

Yes. I mean, when we look at our portfolio and we look at appraised values, and we're -- I mean, it could be 30% or 40% higher than what we've paid in terms of if you use that metric. So we're well under where I think assets would sell or where assets are valued by others, so very good on that. And we continue to be able to source deals that way I think at discounts by buying planes and getting rid of airframes or buying planes that are sort of viewed as less attractive aircraft but have great engines on them. So I think we should be able to continue to do that. One other way, if you look at lease rates, probably a lease rate on a 737 engine a year ago might have been $50,000 a month, and today, it could be $60,000 or $70,000 a month. So it's indicative of what we thought is that there's a lot of demand out there for the CFM-56 and the V2500 engine, which is where we're going to be spending most of our time in the next 3 to 5 years. And as I said, I don't really see how that changes in a negative way. I think it's really -- it's a very, very attractive market opportunity.

And our next question comes from Ariel Rosa from Bank of America Merrill Lynch.

This is a really exciting run down there, Joe. Maybe just if you could do big picture here, map out the landscape. On the infrastructure side, it sounds like the ball is basically in your court in terms of time line of development and the size of the investment that you're going to be laying out. Could you just run out -- run through what are the incremental CapEx needs at each of Repauno, Jefferson and Long Ridge over the next 12 to 18 months maybe?

Sure. So starting with Repauno, as I mentioned, the rail-to-ship loading system -- well, first of all, we're finishing the dock this year, which was roughly a $60 million investment?

Yes.

So that's in 2018 and it's mostly done. We've also applied for some grant programs for various pieces of development there, which we haven't -- I've nothing to report on yet, but I'm optimistic we're going to get some free money here from somebody. And then next year, as I mentioned, the rail-to-ship loading system is approximately $70 million. And then that puts us in business in 2020 with LPGs direct from rail-to-ship. And then the cavern program is $450 million, and that is -- that would be starting next year, spread over 2 years, and then it would put us in business in 2021 in the cavern side. And as I said, I think there's availability of people willing to sign long-term offtake agreements. And so if we get that, we should be able to debt finance very attractively on project basis all of that, I hope. Second one was Long Ridge?

Long Ridge, yes.

Long Ridge, we invested $4 million in our unit train and frac sand loading system and that's basically done. Then we're looking next at the pipeline from the fractionation plant and the rail loading system for LPGs. And I believe that number, what did I say, was 60 also, is my recollection. So that would put us in the LPG rail loading business in the end of next year. And then -- and that's it for frac sand and LPGs. Then the power plant, I mentioned, is roughly a $600 million investment?

Yes.

And that we're looking to do, as I said, debt financing on a substantial portion of that. I can't -- I haven't been able to -- I haven't given a specific number, but would call it a very high amount of that $600 million by the end of -- by the fourth quarter of this year, and then we would look to sell half interest in that in Q1 of next year. Then Jefferson is -- this year's investment was $80 million.

Yes.

And that includes the 800,000 barrels of storage that I mentioned. Then next year, we would be adding 1.2 million barrels of storage, which figures $50 a barrel. So that's $60 million for that. And the dock is also $50 million or $60 million.

Yes.

That seems to be the -- everything's $50 million or $60 million where we're talking about the dock, but -- and then the pipeline project is $400 million, and that would give us connections to market link in, Zydeco out, and it also includes a new -- includes additional storage and I forgot the exact number, 2 million, 3 million barrels of storage. So that's the $400 million. And again, I think that's spread out over the next 2 years, and it should be financed all with debt.

Okay, that's a really great rundown. At Jefferson, would you guys -- you obviously increased your equity stake this past quarter. Would you guys be looking to take on a new partner? Is there any [trips to that] to get some of this financing similar to how you're doing at Long Ridge or what kind of the intention sounds like it is at Long Ridge?

It's possible. We have a couple of negotiations with new customers, and they've asked about the availability of an equity stake as part of the deal. So we're definitely -- I think that makes us a little more flexible than some of the other terminals in the area. So I think we're trying to use that, and we're definitely open to it.

Okay, great. And then just maybe you could talk me through the strategy of this, or maybe explain to me kind of what your guys thinking is. In terms of the balance sheet, obviously, you've been taking on debt at the parent level to fund aviation purchases. Is there a reason that you guys aren't instead looking to do that at the aviation segment level?

Yes. We decided, I guess it was 3 years ago, to do -- to access the public markets for debt as opposed to the asset-backed market. And our experience in that has been the asset-backed market's become operationally very complex. It's much harder to time your financings, to sell assets when you want to sell assets and go through the process of arranging asset-by-asset debt financing. In some cases, it looks cheaper and then ends up being more expensive. And most of the leasing companies you see, all the big leasing companies -- we started it at Aircastle in 2007 I think, we went unsecured, and now all the leasing companies, that's what they do. So I think it's been proven to be a -- and our debt is at -- trades at 5%, it has no amortization, and very few covenants. So it's really hard to beat that.

Got it. That makes a lot of sense. And then just the last question for me. You mentioned the steel tariffs. Maybe you could talk a little bit about your kind of broad view on political risk, NAFTA and AMLO taking control in Mexico, if that has any impact on refined products to Mexico? And just kind of your broader view on tariffs and political risk?

Sure. So we've obviously watched Mexico, and we've been talking to Exxon and others about their view down there. And no one -- initially, no one expected AMLO to be elected and then he did win by a wide margin, and now his focus seems to be on -- and he just announced last week that he wanted to put money directly into building out refining capacity, so Mexico can invest -- should be less dependent on imports of refined products. Most people think that there's no way he gets that done in his term. It's a 5- to 10-year process at a minimum. And even if he did, the amount of capacity they could add probably would only cover the growth in the market, not even touch the existing 800,000 barrels a day they currently import. So it doesn't feel like that's much of a risk for us or for the other people that are supplying the market, so that one seems okay. As I mentioned, other things that have hit, steel prices went up 35%, just on the discussion and announcement of tariffs and so if we're building tanks, it's hit us there in terms of price and timing. But the cost of a tank is much more labor than it is steel. So I think it's less than 15% of the cost of a tank is steel. So it's not a huge impact, but it's kind of -- it felt like unnecessary, but we've had there. On other things, ethanol has potential some upside for us if tariffs come down in Europe, in particular. Europe has always had a 25% import tariff on ethanol, which has made ethanol basically uneconomic for Europe. If that were to come off, then we could see a big jump in volumes there. So there are some pluses and minuses, and we've taken as they come and it seems to change week-to-week, but so far so good.

Our next question comes from Robert Salmon of Wolfe Research.

Joe, could you give us a little bit more color in terms of the contract duration that you announced this morning at Jefferson? Kind of, if you're seeing longer contracts with the new counterparties that recently inked deals?

Most of the -- the bulk of them, the contracts, are in the 3- to 5-year range. There are some outliers that we haven't signed yet, but there's one that would go 20 years. But by and large, I think the market is -- the vast amount of the contracts duration are in the 3- to 5-year range, which oftentimes, the terminal operators prefer that, because there's been so much growth in demand that you've actually been -- it's been an advantage to have renewals.

No, that makes sense. And certainly, if you've got less available capacity when those renewals come up, it could give you some pricing opportunities.

Yes.

When I think about the terminal kind of longer term strategically and you already touched on this a little bit, clearly, you bought out and now own about 80% of the terminal. And it sounds like you're willing to sell a stake for -- with a strategic partner. Would you ever contemplate divesting the entire terminal if the right opportunity came from a counterparty?

Sure. I mean, everything in our life has a price. So if we felt like it was a good return relative to what we could earn, absolutely. I mean, that's how I always tell our people to think about what would be the return if you were the buyer instead of the seller. And if you think that return is crazy low, then you should sell.

Yes, makes a ton of sense. We'll be curious to kind of see how things develop at the terminal, but certainly, a lot of great opportunities there.

Yes. It feels good.

Our next question comes from Robert Dodd of Raymond James.

Yes, sorry, I was muted, very bad. Couple of questions about the smaller businesses. Obviously, CMQR, you talked about a little bit. Offshore as well, I mean, The Pride is going through some refurbishment now, maybe a higher value vessel afterwards. But these are both -- compared to the opportunities and the capital means at the other businesses, pretty small. I mean, at what point do you think it's just not worth keeping them because of the extra overhead they put on you versus the opportunities -- the opportunity of time -- or opportunity of cost of time looking at these other businesses, which have such large optionality?

Well, I mean, it's a good point, and we do look at it all the time. And I think that it's probably something that should or could happen next year once we get the vessel repositioned into a much better market. So -- but the other thing is there is not a lot of overhead or cost associated with staying in the business. So it's pretty much -- but you're right, I mean, from a strategic point of view, relative to aviation, it doesn't make a lot of sense.

Okay, got it. Got it. And then one quick one. On the steel side for the tanks, have you -- in terms of construction delays, it sounds like a little bit, have you now locked down the supply of steel you need or..

Yes.

Yes, okay, got it.

It was -- the market was in sort of chaos for probably 1 month or 2. Just everyone was scrambling and locking everything they could find up and sellers weren't locking in prices, but it has stabilized.

(Operator Instructions) And at this time, I would like to turn the call over to Alan Andreini for closing remarks.

Thank you, operator, and thank you all for participating in today's conference call. We look forward to updating you after Q3.

Ladies and gentlemen, thank you for your participation in today's conference. You may disconnect. Have a wonderful day.